Tesco soothes City on growth

TESCO chief executiveTerry Leahy has delivered a strong set of first-half profits and reassured the City that growth at Britain's biggest supermarkets chain is set to continue.

Profits for the 24 weeks to 10 August rose by 13.3% to £545m, towards the top end of analysts' expectations, on total sales ahead by 10.6%, at £12.7bn. Of that, £2.3bn was earned overseas, an increase of 32%. Like-for-like sales growth has slowed in Britain, to 3.9% over the half year but volume growth remains strong at 5.5%.

Leahy said: 'Last year was exceptional for the whole industry; we did well and others did too. This year we have returned to more normal levels of growth.' He predicted long-term growth for the group of between 3% and 4% and remains untroubled by prospects of a consumer spending slowdown. 'Our surveys show that consumers are still prepared to spend. We have full employment, interest rates are low and house prices are still rising.'

Tesco, which now serves 280m customers a week in 10 countries, continues to take market share from its rivals, and plans to create 21,000 new jobs worldwide this year, including 9,000 in Britain, as it continues its store expansion programme.

The UK sales total rose by 6.8% to £10.5bn including new stores, and price-cut initiatives saw deflation of 1.6%. Margins were 'broadly flat' at 5.6%. Some 37 new stores were opened at home in the first half and another 1.5m square feet of selling space will be opened this year. Almost 60 stores were revamped during the first half.

On the personal finance side, pre-tax profits rose to £34m, of which Tesco's share was £17m, an increase of 143%. Tesco.com, which has more than 85,000 weekly orders in Britain, lifted sales 27% to £186m. It made a profit of £1.9m, excluding start-up costs for GroceryWorks. Its home shopping joint venture with Safeway in the US is under way and will be rolled out in southern California this week.

Is Tesco top of the shops?

Overseas, where Leahy said Tesco continued to make 'excellent progress', operating profits were ahead by 79%, at £59m. The group is now market leader in the first five markets entered and is on track to achieve operating-profit targets of £140m-£160m from developing markets, excluding Malaysia, where it has recently opened up.

The interim dividend is lifted 12% to 1.87p a share.